[This is a reissue of intelligence #2596566 which was originally published in the early hours of this morning, 5 March]

Under intensifying pressure from investors, Lebara capitulated on Friday (2 March) and published a second supplement that finally included EBITDA numbers for the loss-making subsidiaries that form part of its restricted group. The numbers confirmed what many investors had feared - that the European prepay telco is far more levered than it presented in its roadshow materials for its bond. But the additional disclosures still don't fully add up and leave material questions unanswered, six buysiders said.

The group admitted that it was in technical default and stated it made a "genuine mistake" by solely reporting at the Lebara Mobile Group level. It aims to correct this situation and adhere to the 20-business day remedy period.

Based on the additional supplement the Lebara Group generated EUR 29.4m of FY17 EBITDA after consolidating negative EUR 16.4m EBITDA at Lebara Service Centre and negative EUR 1.6m of EBITDA at Lebara Media with positive EUR 64.8m EBITDA generated at Lebara Mobile. That suggests total leverage is around 12x and net leverage 10.8x, which is more than double the 4.9x net leverage Lebara presented previously (which was based solely on Lebara Mobile EBITDA versus HoldCo net debt, as calculated per its covenant definition).

Last year the group had marketed its EUR 350m senior secured 2022 FRN paying Euribor+ 675bps at 5.2x net leverage based on FY16 EBITDA of EUR 64m. But the now fully disclosed FY16 figures show that Lebara generated just EUR 1.9m of EBITDA on a consolidated basis, which means the real net leverage of the deal was 176x..

The FY17 consolidated figures also suggest that the group is free cashflow negative, given that it faces around EUR 24m in annual coupon payments and also spent EUR 5.1m on capex.

While the additional information in the supplement finally provided investors with the earnings at the group's Media and Services Centre entities, there are still a number of inconsistencies and many unanswered questions, the buysiders noted.

Lebara maintained its 2018 EBITDA projection for its Mobile division of EUR 71.9m and actually increased it for FY19 to EUR 96.8m from EUR 87m in its bond presentation. However, these projections were based on subscriber numbers of 3.54m in FY17, 3.74m in FY18 and 4.26m in FY19, but Lebara has actually fallen behind its projected subscriber numbers with just 3.1m subs at the end of 2017.

"The Q4 average was just 2.9m," the first buysider noted. "That means the subscriber numbers need to grow by 29% from the Q4 average in 2018 to hit projections, clearly that is not going to happen! These projections are very, very unlikely to be hit."

There also seems to be a major inconsistency between the figures management presented in the supplement and the PwC Quality of Earnings report some bondholders received during the bond roadshow, the buysiders pointed out. In the supplement management states that Lebara Service Centre generated negative EUR 35m EBITDA in FY16. However, PwC reported only EUR 25m of expenses at Lebara Service Centre for the same period, which matches filed accounts for the entity. That begs the question of why the supplement now shows EUR 10m more of negative EBITDA.

To try shore up confidence, Lebara’s sponsor Palmarium is committing to buying up the loss-making entities. However, that looks like an empty promise given this wouldn't necessarily free the remaining Lebara Group from having to fund operational costs incurred at these entities, since they provide requisite services for the group, the buysiders noted.

"What is Palmarium going to buy? The service centre costs will be moved to the mobile group and media is being shut down… so if they buy some company a year down the line when all the costs have been transferred to mobile, that changes nothing," one of the buysiders commented.

The offer also seems nonsensical given Palmarium owns the entire group, therefore it also already owns these entities and thus should “bear the burden of any potential losses or benefits from any gains here”, a second buysider pointed out.

If Palmarium does have the cash and is committed to the business, it should simply make a straight-out equity injection into Lebara, or offer to buy back the bonds, the buysiders added.

The sponsor also tried to defuse question marks over the real value of the IP it contributed (consisting of Lebara trademarks and its brand) in lieu of cash as its equity stake in the deal, by reiterating that the value of the two trademark companies was determined by an independent third-party brand valuation carried out by PwC, which confirmed their value of EUR 85m, and cited a renewal agreement with Sunrise in Switzerland. But it failed to provide any documentary evidence, such as the SPA (sales purchase agreement) for its acquisition of the trademark, which investors have called for.

"This does not answer the question of the cash amount paid by Palmarium for the Lebara trademark vehicles," the second buysider commented. "A renewal of a licence agreement does not tell you anything about whether EUR 85m is the right valuation for the IP."

According to publicly available accounts for Leon Holdings AS, through which one of the sellers held the IP, it had a book value of just NOK 170m (EUR 17m), as reported. In 2009 Lebara moved the trademarks to the IP vehicles for just EUR 250k, the second buysider added.

Lebara's bonds plummeted to the high 60s from Monday's highs of 91 as concerns mounted over potential losses at the then still undisclosed Services Centre and Media divisions. The notes pared some losses to end the week at 71/73, as reported.